Tooling & Other Equipments Costs (in short-run)

Material Cost 50000

Direct Labour (assuming only for manufacturing) 0
Opportunity cost for inhouse designing & manufacturing of tools 330000
Sub total 380000
Other Investments (assembly & storage) 39000
Total fixed costs 419000
Analysis for acceptance/ rejection of Trial order for manufacturing 250 Vending
Machines_Analysis in Short-Run

Particulars Amount (`)

Material Cost 58.31
Labour & Overheads for manufacturing 67.31
Labour & Overheads for Assembly 25.30
Electroplating 92.25
Change giving mechanism 89.00
Total Variable Cost 332.17
Selling Price 1680
Labour for tooling 0
Royalty 84.00
Contribution 1263.83
Opportunity cost of inhouse tooling (Including material & other Investments) 419000

Total Contribution Available 315958

YEAR 1 (Trial order for selling Machines)

Total Contribution (1680-332.17-84)*250 315958
Amount Expected to be recovered by the end of Year 1 (or by selling 250 machines) 502800
Amount Expected to be recovered from further sales of machines (in next year) 224211

YEAR 2 (Possible Scenarios)

Scenario 1: 750 Machines @ Rs. 1680
Contribution 947873
Amount Need to be recovered 224211
Surplus after full recovery on 'Investments along with desired profits' 723662

Scenario 2: 600 Machines @ Rs. 1400

Contribution 598698
Amount Need to be recovered 224211
Surplus after full recovery on 'Investments along with desired profits' 374487
Scenario 3: 450 Machines @ Rs. 1200
Contribution 363523.5
Amount Need to be recovered 224211
Surplus after full recovery on 'Investments along with desired profits' 139313

Scenario 4: 300 Machines @ Rs. 1100

Contribution 213849
Amount Need to be recovered 224211
Surplus after full recovery on 'Investments along with desired profits' -10362

Scenario 5: 150 Machines @ Rs. 1100

Contribution 106924.5
Amount Need to be recovered 224211
Surplus after full recovery on 'Investments along with desired profits' -117287

Scenario 6: No Machine Sold

Contribution 0
Amount Need to be recovered 186843
Surplus after full recovery on 'Investments along with desired profits' -186843

From the above analysis, it may be noted that the company can lose a maximum of Rs. 1,86,843 in the
worst scenario when it does not receive any order for further supply. However, the possibility of such a
scenario is meager given the first mover's advantage; it would be worth to take this risk given the strong
profit position of the company.

Please Note: The scenarios made are arbitrary in nature; one can always come out with other scenarios
within the range of 0-750 machines by varying prices from Rs. 1033 to 1680 per machine.
750 299 631.1 664.2632
600 374 705.8 742.9158
450 498 830.3 874.0035
300 747 1079.4 1136.179
0

200 1121 1453.0 1529.442

100 2242 1680.0 166.3118 97817.00

502800
Analysis for Determining the Price of Vending Machines need to be quoted for Long-Run
Deals/ Supply of Machines (April 01, 1966-March 31, 2010)

Particulars Amount (`)

Material Cost 58.31
Labour & Overheads for manufacturing 224.37
Labour & Overheads for Assembly 84.32
Electroplating 92.25
Change giving mechanism 89.00
Total Variable Cost 548.25
Royalty 51.63
Fixed cost(618145/2000) 309.07
Expected Return (PBT)@20% p.a. 123.63
Total Cost in Long Run 1032.58

Total Investment along with returns to be recovered (assuming 4 years period) 865403

YEAR 3-7 One Possible Scenario (Conservative)

Scenario : 2500 Machines @ Rs. 1200 (Assuming that he could sell 450 Machines in Year 2)

Surplus from the machines manufactured using tools made in the beginning for Trial Orders 769275
Surplus from the machines manufactured using fresh tools -155303
Surplus after full recovery on 'Investments along with desired profits' (Based on Full Costs) 613972

1183500
318097
6.18 5.41
4.64 3.86
3.09 2.32
1.55 0.77
3.09
 4.55 4.75 4.94 4.95 5.05
4.5 4.7 4.9 4.91 5.05
4.4 4.69 4.85 4.85 5.02
4.38 4.65 4.85 4.82 5
4.38 4.65 4.85 4.8 5
4.442 4.688 4.878 4.866 5.024 cf
22.21 23.44 24.39 24.33 25.12 119.49 571.1144 493.2841
98.65682
20.7025 22.5625 24.4036 24.5025 25.5025
20.25 22.09 24.01 24.1081 25.5025
19.36 21.9961 23.5225 23.5225 25.2004
19.1844 21.6225 23.5225 23.2324 25
19.1844 21.6225 23.5225 23.04 25

572.1669 x2

4.78 -0.338 -0.092 0.098

0.114244 0.008464 0.009604

TSS 1.052496
SST
SSE
 t2
549.4336 594.8721 591.9489 631.0144 2860.553 572.1106
109.8867 118.9744 118.3898 126.2029 114.4221 0.996216

0.996216

0.086 0.244
0.007396 0.059536 0.199244
4.9811